Staking a Claim in Cyberspace

By Edwin Hayward ([email protected])

There has been a lot of recent media interest in the large sums of money that have been changing hands in exchange for domain names. This article aims to give an overview of the domain name market, as well as providing more information about the domain names themselves.

What is a Domain Name?

All computers on the Internet have a 4-part numeric IP address (i.e., 204.162.81.10). These IP addresses are useful to computers as they contain the necessary information on how to connect to a site. However, IP addresses are very difficult to remember.

This is where domain names enter the picture. A domain name can be thought of as a mnemonic, an aide-memoire to help people find your site. For instance, you are reading this article on the site www.webreference.com. www.webreference.com is a domain name. It is an alias for the IP address 207.113.171.151. When you access the webreference.com site, the domain name is changed transparently into the corresponding IP address.

In this case, webreference.com is the main domain name, and www.webreference.com is a subset of this domain (or subdomain). It is possible to set up many subsets of a single main domain name. For instance, if the main domain name was holidayweb.com, it is a simple process to create subsets of this domain such as flights.holidayweb.com or tours.holidayweb.com. Each subset could be connected to a different web site.

Domain names are now a common sight in newspapers, magazines and other media. If you are walking past a billboard or reading a large ad, take a look down at the bottom of the advertisement. You will frequently find the address of a web site offering further information; that address is a domain name.

Another significant feature of domain names is that they are unique. There can only be one webreference.com. This is what has precipitated interest in domain names, and what has lead some companies and individuals to pay a great deal of money for a name.

Aspects of Domain Names

Domain names are:-

A) Portable

Because a domain name is just an alias for an IP address, it is very easy to move a web site from one server to another. This can be done by deleting the association between the domain name and the old IP address, and associating the name with the new address. This process can be carried out very quickly, and will be entirely transparent to visitors to the site, who will continue to access it via its domain name.

B) Memorable

A good domain name is easy to remember. This makes a site easier to promote. As Matthew Barzun of CNET says: "A good domain name is easy to promote on TV and in print advertising. In offline media such as these it is important for the name to be memorable because the site is more than a click away."

C) Associable

Some domain names are used to associate a generic word with a specific company. Procter and Gamble for example has been registering hundreds of names, including germs.com, dishes.com, flu.com and the intriguing diarrhea.com. This can make it easier for the site to appear near the top of a search when a query is sent to a search engine containing a key word the same as the domain name.

Buying a Domain Name

Acquiring a domain name is a very simple process. They can be purchased directly from InterNIC, the central registry in charge of all domain name allocation. There are also many companies in the business of facilitating domain name purchases, for a small fee. A domain name will cost $100 for the first two years of ownership, and $50 a year after that, plus whatever the intermediary company charges for its services.

The Money Game

Domain names are being snapped up at an astounding rate, from several hundred to over seventeen thousand a day, depending on which source you believe. Even the more conservative figures provide food for thought: the number of registered domain names has doubled in just a few months.

The result of this is that most, if not all, of the "best" domain names have already been reserved. Remember that domain names are unique, so once a specific name is taken, it is not available to anyone else. This has led to a scarcity of good domain names, and the formation of a secondary market for domain names.

The sums involved can be considerable. CNET for example, paid $20,000 for download.com and $15,000 for tv.com. cybercafe.com sold for $12,000. BestDomains, a domain broker, recently sold 7 domain names for an average of $5,285 each. Many large companies do not disclose the amounts they have paid for domain names, but a number of "substantial" transactions have taken place.

On occasion, the offers refused have been even more substantial. Mike O'Connor turned down $50,000 for television.com, and an astounding $750,000 bid was refused for the billgates.com domain name, listed for sale on the DomainMart brokerage site.

Numerous companies have appeared on the scene to facilitate the sale of domain names. As well as BestDomains and DomainMart, these include Multimedia Realty, DomainReseller, The Domain Name Company and Jubilee. Some companies offer other services, such as the option to lease domain names, or even associated merchandise such as vanity plates [DomainMart].

Many of these companies have been around for just a few months or even weeks, and have not yet had time to built up a track record of completed sales. BestDomains appears to enjoy a slight advantage in this area, as it has completed a number of sales and is currently the largest of the domain name brokers. DomainReseller has also completed several sales. Other domain brokers have proven coy about disclosing sales information.

At present, most of the action in the market is on the buying side, with companies and individual scrambling to register domain names others may have missed. The domain name market is still relatively quiet, despite the spate of high-profile sales. There are thousands of names for sale across the various domain brokerage sites, and more added every day.

This should change soon. As the number of companies on the Internet increases, the demand for good domain names will rise steeply. The important focus here is "good": many domain names will never acquire a great deal of value, but if a domain name is short, easy to remember, descriptive and/or generic its value should rise substantially. Steve from DomainReseller points out, "We believe domain names are the "Beach Front" property of the next century. Their value will continue to increase at a rapid rate over the next few years as more people, businesses and organizations realize the powerful impact of a domain name. The benefit of domain names just for use with unique email accounts, is and will be, a major communications tool for years to come."

David Milligan of BestDomains concurs: The past and present have shown that as more people develop Internet-based businesses and access, the need for quality addresses continues to grow. The key here is "quality" for even now people are discovering that the original address they chose may not have been the best for their web site or business and new companies are coming onto the Net daily with the same address needs."

Even proposed changes in the registration system to expand the number of domain names available are unlikely to stem the interest in domain names. The current system has been around for a long time (in Internet terms) and the naming system has acquired a degree of familiarity with web users that any new naming system would have to contend with. David Ward from The Domain Name Company is cautiously optimistic on this point: "An expansion of top level domains may be inevitable. However, assuming a domain name is well chosen, it should still continue to appreciate in a rapidly expanding market."

In conclusion, the domain name market is an exciting and rapidly growing one, with more players, big and small, entering every day. And with an entry price starting at just $100, most people and certainly most companies can afford to get in on the action.

Staking a Claim in Cyberspace